M/s. Jay Chem, Ahmedabad v. The ACIT., Circle-10,, Ahmedabad

ITA 1092/AHD/2007 | 2000-2001
Pronouncement Date: 09-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 109220514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 1092/AHD/2007
Duration Of Justice 3 year(s) 25 day(s)
Appellant M/s. Jay Chem, Ahmedabad
Respondent The ACIT., Circle-10,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 09-04-2010
Date Of Final Hearing 05-04-2010
Next Hearing Date 05-04-2010
Assessment Year 2000-2001
Appeal Filed On 14-03-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND BHAVNESH SAINI JUDICIAL MEMBER) ITA.NO.816 817/AHD/2007 ASSTT.YEAR : 2000-2001 AND 2003-2004 DCIT CIR.10 AHMEDABAD. VS. M/S.JAY CHEM 803 SHILP BUILDING CG ROAD NAVRANGPURA AHMEDABAD. ITA.NO.1092 AND 1093/AHD/2007 ASSTT.YEAR : 2000-2001 AND 2003-2004 M/S.JAY CHEM 803 SHILP BUILDING CG ROAD NAVRANGPURA AHMEDABAD. VS. ACIT CIR.10 AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.K. MISHRA ASSESSEE BY : SHRI TUSHAR P. HEMANI O R D E R PER G.D. AGARWAL VICE-PRESIDENT: THESE ARE FOUR APPEALS TWO EACH BY THE REVENUE AND THE ASSESSEE FOR THE ASSESS MENT YEARS 2000-2001 AND 2003-2004. THE APPEALS ARE AGAINST THE ORDERS COMM ISSIONER OF INCOME-TAX (APPEALS)-XVI AHMEDABAD DATED 4-12-2006 ARISING OU T OF THE ORDERS OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF TH E INCOME TAX ACT 1961. SINCE ASSESSEE IS SAME AND ISSUES AND GROUNDS RAISE D IN ALL THE APPEALS ARE SIMILAR FOR THE SAKE OF CONVENIENCE WE DISPOSE OF THESE APPEALS BY THIS COMMON ORDER. 2. FIRST WE SHALL TAKE DEAL WITH THE ASSESSEES APP EAL FOR A.Y.2000-2001 IN ITA NO.1092/AHD/2007. THE FIRST GROUND IN THIS APP EAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN REOPENING THE ASSESSMENT PROCEEDING S U/S.147 OF THE IT ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ACTION OF ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -2- REOPENING IS WITHOUT JURISDICTION AND NOT PERMISSIB LE EITHER IN LAW OR ON FACT. THE PRESENT PROCEEDINGS THEREFORE ARE REQU IRE TO BE QUASHED. 3. AT THE TIME OF HEARING BEFORE US IT IS STATED B Y THE LEARNED COUNSEL THAT THE AO HAS REOPENED THE ASSESSMENT ON THE BASIS OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE. IN SUPPORT OF THIS CONTENTION HE RELIED UPON THE HONBLE APEX COURT DECISION IN THE CASE OF CIT VS. KELVINAT OR OF INDIA LTD. & ANR. 320 ITR 561 (SC). THE LEARNED DR ON THE OTHER HAN D HAS RELIED UPON THE ORDER OF THE CIT(A) AND STATED THAT THE CIT(A) HAS DISCUSSED THIS ISSUE AT LENGTH. HE HAS RECORDED THE FINDING THAT THE ASSES SMENT WAS REOPENED WITHIN THE PERIOD OF FOUR YEARS AND THE AO HAS DULY RECORD ED THE REASON THAT THE ASSESSEE HAS CLAIMED EXCESS DEDUCTION UNDER SECTION S 80HHC AND 80IB. THE COPY OF RECORDED REASONS WAS SUPPLIED BY THE AO TO THE ASSESSEE AND HE HAS NOT FILED ANY OBJECTION BEFORE THE AO. 4. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T THE CIT(A) HAS RECORDED THE FOLLOWING FINDING: 3. THE AO MENTIONED THAT IN VIEW OF THESE FACTS THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF PROVISION OF EXPLANATION 2 TO SECTION 147. THE AO SUPPLIED A COPY OF THE REASONS RECORDED FOR INITIATING PROCEEDINGS FOR REOPENING OF ASSESSMENT. BEFORE THE AO THE APPELLANT DID NOT O BJECT TO REOPENING OF THE ASSESSMENT. HOWEVER THIS GROUND HAS BEEN TAKE N UP DURING THE APPELLATE PROCEEDINGS. THERE IS SUBSTANTIAL CHANGE IN SECTION 147 WITH EFFECT FROM 01-4-1989. THIS CHANGE WAS MADE BY THE DIRECT TAX LAWS AMENDMENT ACT 1987. AS PER THE AMENDED PROVISIONS THE AO CAN REOPEN THE ASSESSMENT IN CASE HE HAS REASON TO BEL IEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN ANY ASS ESSMENT YEAR. THE ONLY CONDITION IMPOSED IS THAT IN CASE THE ORIGINA L ASSESSMENT HAS BEEN FRAMED U/S.143(3) THE AO CANNOT REOPEN THE ASSESSM ENT AFTER EXPIRY OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR UNLESS THE INCOME CHARGEABLE TO TAX HAS ESCAPED THE ASSESSMENT BY REA SON OF FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S.139/142(1 )/148 OR TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FO R ASSESSMENT. IN THE ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -3- PRESENT CASE THE ASSESSMENT HAS BEEN REOPENED BY T HE AO WITHIN A PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSE SSMENT YEAR. THE NOTICE U/S.148 WAS SERVED ON 21-3-05 WHICH IS WITHI N THE PERIOD OF 4 YEARS. THUS THE ONLY CONDITION WHICH WAS REQUIRED TO BE SATISFIED BY THE AO FOR REOPENING THE ASSESSMENT IS THAT THE AO HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR ANY ASSESSMENT YEAR. IN THE PRESENT YEAR THE AO H AS CLEARLY MENTIONED IN THE REASONS RECORDED FOR REOPENING THE ASSESSMEN T THAT THE APPELLANT HAS CLAIMED EXCESS DEDUCTIONS U/S.80HHC & 80IB BY C LAIMING THE SAME ON INCOME OF EXPORT INCENTIVES LIKE DEPB INCOME AN D EXCHANGE RATE DIFFERENCE INCOME. THE AO HAS FURTHER MENTIONED TH AT THE APPELLANT HAS NOT ADDED BACK 1/5 TH OF THE DEPRECIATION ON MOTOR-CAR. IT IS THUS CL EAR THAT THE AO HAD THE REASON TO BELIEVE THAT INCOME C HARGEABLE TO TAX HAD ESCAPED ASSESSMENT. 5. AT THE TIME OF HEARING BEFORE US THE LEARNED CO UNSEL FOR THE ASSESSEE WAS UNABLE TO CONTROVERT THE ABOVE FINDINGS OF THE CIT(A). THE LD.COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBL E APEX COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA). IN THIS CASE THE IR LORDSHIPS HELD AS UNDER: THE CONCEPT OF CHANGE OF OPINION ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 OF THE INCOME TAX ACT 1961 BY THE D IRECT TAX LAWS (AMENDMENT) ACTS 1987 AND 1989. AFTER THE AMENDME NT THE AO HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSE SSMENT BUT THIS DOES NOT IMPLY THAT THE AO CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST B E TREATED AS AN IN- BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFT ER APRIL 1 1989 THE AO HAS POWER TO REOPEN AN ASSESSMENT PROVIDED THERE I S TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WI TH THE FORMATION OF THE BELIEF. FROM THE ABOVE IT IS EVIDENT THAT THEIR LORDSHIPS STATED THAT THE ASSESSING OFFICER CANNOT REOPEN THE ASSESSMENT BY CHANGE OF OPINION EVEN AFTER THE AMENDMENT BY DIRECT TAX LAW AMENDMENT ACT 1987 & 1 989. HOWEVER IN THIS CASE THE CIT(A) HAS RECORDED THE FINDING THAT ASSESSMENT WAS NOT REOPENED ON THE BASIS OF CHANGE OF OPINION. THE FINDING OF THE CIT(A) HAS NOT BEEN CONTROVERTED BY THE ASSESSEES COUNSEL.; THEREFORE THE DECISION OF ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -4- HONBLE APEX COURT RELIED UPON BY THE ASSESSEE WOUL D NOT APPLICABLE. THE AO HAS RECORDED THE FINDING THAT THERE WAS ESCAPEMENT OF INCOME BECAUSE OF EXCESS DEDUCTION CLAIMED AND ALLOWED U/S.80HHC AND 80IB. COPY OF REASONS RECORDED FOR REOPENING OF ASSESSMENT WAS SUPPLIED B Y THE AO TO THE ASSESSEE. HOWEVER NO OBJECTION IS FILED BY THE ASSESSEE BEFO RE THE AO. IN VIEW OF THE ABOVE WE DO NOT FIND ANY JUSTIFICATION TO INTERFER E WITH THE ORDER OF THE CIT(A) ON THIS POINT. ACCORDINGLY GROUND NO.1 OF THE ASSE SSEE APPEALS STANDS DISMISSED. 6. GROUND NOS.2 TO 6 AND 8 READ AS UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN REDUCING PROFITS OF THE BUSINESS ON ACCOUNT OF SALE PROCEEDS F DEPB LICENSE WHILE CALCULATING DEDUCTION U/S.80HHC OF THE ACT WITHOUT APPRECIATING THE CLAIM OF THE APPELLANT UNDER THE AMENDED PROVISIONS OF SECTION 80HHC O THE ACT. 3. ALTERNATIVELY AND WITHOUT PREJUDICE ONLY 90% OF THE PROFITS AND NOT THE ENTIRE SALE PROCEEDINGS OF DEPB LICENSE COU LD HAVE BEEN REDUCED FROM THE PROFITS OF THE BUSINESS. 4. ALTERNATIVELY AND WITHOUT PREJUDICE IF PROFIT O N SALE OF DEPB LICENSES IS NOT FALLING WITHIN THE PURVIEW OF S.28( IIIA)/(IIIB)/(IIIC) OF THE ACT THE SAME IS NOT LIABLE TO TAX AT ALL AND THERE FORE THE SAME HAS TO BE REDUCED FROM THE TAXABLE INCOME OF THE APPELLANT. 5. ALTERNATIVELY AND WITHOUT PREJUDICE EVEN AS PER THE PROVISIONS OF TAXATION LAWS (SECOND AMENDMENT) ACT 2005 THE SAI D DEPB SALE PROCEED IS ELIGIBLE FOR DEDUCTION U/S.80HHC OF THE ACT. 6. ALTERNATIVELY AND WITHOUT PREJUDICE LD.CIT(A) F AILED TO APPRECIATE THAT THE SAID SALE PROCEEDS OF THE DEPB LICENSE ARE COVERED BY 28(IV) OF THE ACT AND THEREFORE DEDUCTION U/S.80 HHC OF THE ACT OUGHT TO HAVE BEEN ALLOWED FULLY ON THE SAME. 8. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ACTION OF AO IN NOT GRANTING DEDUCTION U/S.80IB OF THE ACT ON DEPB SALES PROCEEDS AMOUNTING TO RS.51 19 093/-. ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -5- 9. ALTERNATIVELY AND WITHOUT PREJUDICE IF THE DEPB IS TO BE EXCLUDED CORRESPONDING COST OF THE DEPB LICENSES M AY KINDLY BE ALLOWED TO BE TAKEN OUT FROM THE CALCULATIONS OF TH E PROFITS OF THE BUSINESS. 7. AT THE TIME OF HEARING BEFORE US IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT ALL THE ABOVE GROUNDS ARE RELATING TO THE COMP UTATION OF DEDUCTION UNDER SECTION 80HHC VIS--VIS SALE PROCEED OF THE DEBP LI CENSE. HE HAS STATED THAT THE ABOVE MATTER IS DECIDED BY THE SPECIAL BENCH OF THE ITAT MUMBAI IN THE CASE OF TOPMAN EXPORTS VS. ITO (2009) 125 TTJ (MUM BAI)(SB) 289 = 318 ITR (AT) 87 (MUMBAI)(SB). THEREFORE THE AO MAY BE DIRECTED TO RE-COMPUTE DEDUCTION UNDER SECTION 80HHC IN THE LIGHT OF THE A BOVE DECISION OF THE SPECIAL BENCH OF THE ITAT. THE LEARNED DR HAS NO O BJECTION TO THE ABOVE REQUEST OF THE ASSESSEES COUNSEL. 8. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS A ND PERUSED MATERIAL PLACED ON RECORD. WE FIND THAT THE SPECIAL BENCH O F THE ITAT MUMBAI IN THE CASE OF TOPMAN EXPORTS (SUPRA) HAS HELD AS UNDER: DEDUCTION UNDER S. 80HHCPROFITS DERIVED FROM EXPO RTSALE OF DEPB ENTITLEMENTSEXPORT INCENTIVES THOUGH STRICTL Y GOING BY THE MEANING OF THE EXPRESSION DERIVED FROM ARE NO T TO FORM PART OF THE PROFITS DERIVED FROM SUCH EXPORTS UNDER SUB-S. (1) BUT BY VIRTUE OF SUB-S. (3) R/W EXPLANATION ARE TO BE INCLUDED IN THE ELIG IBLE AMOUNTENTIRE MECHANISM FOR COMPUTATION OF PROFITS DERIVED FROM E XPORTS UNDER S. 80HHC HAS BEEN SPECIFICALLY PROVIDED FOR IN THE SEC TION ITSELF AND THERE IS NO NEED TO BE GOVERNED BY THE UNDERSTANDING OF T HE EXPRESSION PROFITS DERIVED FROM EXPORT IN COMMON PARLANCEIT IS OBVIOUS THAT 10 PER CENT OF SUCH INCOMES REPRESENTING THE EXPENSE S ARE REDUCED FROM THE TOTAL EXPENSES AT THE TIME OF COMPUTING THE PRO FITS DERIVED FROM EXPORT UNDER SUB-S. (3) OF S. 80HHC AND HENCE THERE IS NO SCOPE FOR GRANTING ANY FURTHER DEDUCTION TOWARDS SUCH EXPENSE S WHILE WORKING OUT THE PROFITS ON TRANSFER OF DEPB UNDER S. 28(III D)FACE VALUE OF DEPB CANNOT BE REDUCED FROM THE COST OF PURCHASES A ND HAS TO BE CONSIDERED AS A SEPARATE SPECIES OF BUSINESS INCO ME IF THE INTENTION OF THE LEGISLATURE HAD BEEN TO ALLOW THE REDUCTION OF THE FACE VALUE OF DEPB FROM THE COST OF PURCHASES AS HAS BEEN CONTEN DED THEN THERE WAS NO NEED TO HAVE CLS. (IIIA) TO (IIIE) OF S. 28 AND ALSO THE FIRST TO FIFTH ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -6- PROVISOS TO S. 80HHC(3) ALONG WITH THE NECESSARY IN GREDIENTS OF EXPLANATION BELOW S. 80HHCNATURAL OUTCOME FOLLOWIN G THE PRESCRIPTION OF CLS. (IIIA) TO (IIIE) OF S. 28 ALON G WITH S. 80HHC(3) IS THAT ALL THE EXPORT INCENTIVES INCLUDING DEPB AND DFRC E TC. BE CONSIDERED AS SEPARATE BUSINESS INCOME AND NOT TO REDUCE THEM FROM THE COST OF PURCHASESTHEREFORE IN THE SCHEME OF S. 80HHC THE FACE VALUE OF DEPB CANNOT BE REDUCED FROM THE PURCHASE COST BUT I S SEPARATE INCOME UNDER S. 28(IIID) WHICH ACCRUES AT THE TIME OF MAK ING APPLICATION PURSUANT TO EXPORTSONLY THE PROFIT ELEMENT ON THE SALE OF DEPB THAT IS THE AMOUNT IN EXCESS OF SALE PROCEEDS OVER THE F ACE VALUE IS COVERED UNDER S. 28(IIID)SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER S. 80HHC ARE NOT AVAILAB LE ON RECORD THE IMPUGNED ORDERS ARE SET ASIDE AND THE AO IS DIRECTE D TO COMPUTE THE AMOUNT OF RELIEF IN ACCORDANCE WITH LAW RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE SP ECIAL BENCH WE DIRECT THE AO TO RE-COMPUTE THE DEDUCTION UNDER SECTION 80HHC IN THE LIGHT OF THE ABOVE DECISION. 9. GROUND NO.7 OF THE ASSESSEES APPEAL READS AS UN DER: THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF AO IN NOT GRANTING DEDUCTION U/S.80IB OF THE ACT ON DEPB SALES PROCEEDS AMOUNTING TO RS.51 19 093/- 10. AT THE TIME OF HEARING BEFORE US THE LEARNED C OUNSEL FAIRLY ADMITTED THAT THE ABOVE ISSUE IS SETTLED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT 31 7 ITR 218 (SC) WHEREIN THE HONBLE COURT HELD AS UNDER: DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM T HE SCHEME FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIV ED FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB: THEY BELONG TO THE C ATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WA Y OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CREDITED AGAINST THE C OST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FRO M INDUSTRIAL UNDERTAKING UNDER SECTION 80IB. ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -7- WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT REJECT THE GROUND NO.7 OF THE ASSESSEES APPEAL. 11. GROUND NO.9 OF THE ASSESSEES APPEAL READS AS U NDER: THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF AO IN NOT GRANTING DEDUCTION U/S.80IB OF THE ACT ON CURRENCY RATE DIFFERENCE AMOUNTING TO RS.8 68 581/- 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT AHMEDABAD BENCHES IN ASSESSEE S OWN CASE FOR A.Y.2002-2003 VIDE ITA NO.841/AHD/2006 DATED 28-8-2 009 WHEREIN THE ITAT FOLLOWING THE DECISION IN THE CASE OF SHAH ORI GINALS VS. ACIT 19 SOT 568 (MUM) DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE. THE RELEVANT FINDING OF THE ITAT READS AS UNDER: WE FIND THAT ON THIS ISSUE THE BENCH IN THE CAS E OF SHAH ORIGINALS (SUPRA) HAS CLEARLY STATED IN PARAS-35 AS UNDER: 35. AS REGARDS RECEIPTS FROM FOREIGN EXCHANGE FLUC TUATION IS CONCERNED IT HAS ALREADY BEEN DISCUSSED ABOVE THAT THE SAME FORMS A INTEGRAL PART OF THE EXPORT PROCEEDS AND WO ULD THUS HAVE TO BE CONSIDERED AS DERIVED FROM THE INDUSTRIAL UND ERTAKING. WE ORDER ACCORDINGLY AND DIRECT THAT FOREIGN EXCHANG E FLUCTUATION BE TAKEN INTO CONSIDERATION FOR ALLOWING DEDUCTION UNDER SECTION 80-IB. AS THE ISSUE IS VERY CLEAR AND THE FOREIGN EXCHANGE FLUCTUATION RECEIPTS CONFIRMED AN INTEGRAL PART OF THE EXPORT PROCEEDS A ND IT SHOULD HAVE BEEN CONSIDERED AND DERIVED FROM INDUSTRIAL UNDERTA KINGS. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE IT AT MUMBAI WE ALLOW THIS GROUND OF THE ASSESSEE. 13. GROUND NO.10 OF THE ASSESSEE READS AS UNDER: ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -8- 10. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING DEPRECIATION ON MOTOR C AR AMOUNTING TO RS.39 478/- 14. ASSESSEE IS A PARTNERSHIP FIRM AND PERSONAL USE R OF THE MOTOR CAR OF THE FIRM BY THE PARTNERS OR THEIR FAMILY MEMBERS CANNOT BE RULED OUT. IT HAS NOT BEEN POINTED OUT THAT THE PARTNERS ARE MAINTAINING THEIR PERSONAL MOTOR CAR. IN VIEW OF THE ABOVE WE FIND NO JUSTIFICATION TO INTE RFERE WITH THE ORDER OF THE LOWER AUTHORITIES ON THIS POINT. ACCORDINGLY GROU ND NO.10 OF THE ASSESSEES APPEAL IS REJECTED. 154. GROUND NO.11 OF THE ASSESSEE IS OF GENERAL NAT URE AND NEEDS NO SPECIFIC ADJUDICATION. 16. GROUND NO.12 IS REGARDING LEVY OF INTEREST UNDE R SECTION 234A/B/C. IT IS FAIRLY ADMITTED BY THE LEARNED COUNSEL FOR THE A SSESSEE THAT THE CHARGING OF INTEREST WOULD BE CONSEQUENTIAL. WE THEREFORE DIRE CT THE AO TO RE-COMPUTE THE INTEREST AFTER THE FINAL DETERMINATION OF INCOME AF TER GIVING EFFECT TO THIS ORDER. 17. GROUND NO.13 IS REGARDING INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AT THIS STAGE HENCE NEEDS NO ADJUDICATION. ITA NO.816/AHD/2007 REVENUES APPEAL FOR A.Y.2000 -2001: 18. GROUND NO.1 READS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DIR ECTING TO RECOMPUTE THE DEDUCTION U/S.80IB ON DUTY DRAW BACK INCOME OF RS.20 91 076/- AND DEPB LICENSE INCOME OF RS.51 19 092/- 19. AT THE TIME OF HEARING BEFORE US IT IS SUBMITT ED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. INDIA GELATINE AND CHEMICALS LTD. 275 ITR 284 AND ALSO T HE ASSESSEES OWN CASE FOR ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -9- A.Y.2002-2003 IN ITA NO.281/AHD/2006. THE LEARNED DR ON THE OTHER HAND HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES . 20. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIAL PLACED ON RECORD. WE FIND THAT THE ISSUE TO BE COVERED AGAIN ST THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LIBERTY INDIA VS. CIT 317 ITR 218 (SC) WHEREIN THEIR LORDSHIPS HAS HELD AS UNDER: DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT F ORM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF THE DEDUCTION UNDER SECTION 80-I/80-IA/80-IB OF THE INC OME-TAX ACT 1961. SINCE THE ISSUE IS NOW COVERED BY THE DECISION OF T HE HONBLE APEX COURT THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND I TAT RELIED UPON BY THE LEARNED COUNSEL OF THE ASSESSEE WOULD NOT BE APPLIC ABLE. WE MAY ALSO POINT OUT THAT THE DECISION OF THE JURISDICTIONAL HIGH CO URT AS WELL AS ITAT BOTH WERE DELIVERED PRIOR TO THE ABOVE DECISION OF THE HONBL E APEX COURT. IN VIEW OF THE ABOVE WE RESPECTFULLY FOLLOWING THE DECISION O F THE HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) REVERSE THE OR DER OF THE CIT(A) ON THIS POINT AND HOLD THAT THE DUTY DRAW BACK IS NOT ELIGIBLE FO R DEDUCTION UNDER SECTION 80IB. ACCORDINGLY THE ORDER OF THE CIT(A) ON THIS POINT IS REVERSED AND THE GROUND NO.1 OF THE REVENUES APPEAL IS ALLOWED. 21. GROUND NO.2 OF THE REVENUES APPEAL READS AS UN DER: 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DIR ECTING THE AO TO RECOMPUTE THE DEDUCTION U/S.80HHC WITHOUT REDUCING THE DEDUCTION ALLOWED U/S.80IB AND ALSO ON THE INCOME EARNED BY W AY OF CURRENCY RATE DIFFERENCE. 22. THE ABOVE GROUND OF THE REVENUE HAS TWO LIMBS. (I) WHETHER DEDUCTION UNDER SECTION 80HHC IS TO BE ALLOWED WITHOUT REDUCI NG THE DEDUCTION ALLOWED UNDER SECTION 80IB AND (II) WHETHER DEDUCTION UNDER SECTION 80HHC IS ALLOWABLE ON THE INCOME EARNED BY WAY OF CURRENCY R ATE DIFFERENCE. ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -10- 23. AFTER HEARING BOTH THE SIDES WE FIND THAT SO F AR AS THE FIRST ISSUE IS CONCERNED THE LEARNED COUNSEL FAIRLY ADMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH O F ITAT DELHI IN THE CASE OF ACIT VS. HINDUSTAN MINT AND AGRO PRODUCTS P.LTD. AN D OTHERS 315 ITR (AT) 401 (DELHI)(SB). RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE ITAT WE REVERSE THE ORDER OF THE CIT(A) ON THIS POINT AND R ESTORE THAT OF THE AO. 24. SO FAR AS CURRENCY RATE DIFFERENCE IS CONCERNED WE FIND THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AMBA IMPEX 282 I TR 144 WHEREIN AT PAGE NO.147 OF THE REPORT THEIR LORDSHIPS HELD AS UNDER : UNDER SUB-SECTION (2) OF SECTION 80HHC OF THE ACT SALE PROCEEDS OF GOODS OR MERCHANDISE EXPORTED OUT OF INDIA AND RECE IVED IN CONVERTIBLE FOREIGN EXCHANGE BECOME ENTITLED TO THE DEDUCTION S UBJECT TO FULFILMENT OF OTHER REQUISITE CONDITIONS. CLAUSE (A) OF SUB-S ECTION (2) OF SECTION 80HHC OF THE ACT PROVIDES THAT SUCH SALE PROCEEDS H AVE TO BE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER P ERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. THUS A PLAIN READING OF THE PROVISION MAKES IT CLEAR THAT ONCE THE COMPETENT AU THORITY HAS EXTENDED THE TIME IN A CASE WHERE IT IS NECESSARY OR WHE RE THE SALE PROCEEDS HAVE BEEN RECEIVED WITHIN A PERIOD OF SIX MONTHS F ROM THE END OF THE PREVIOUS YEAR SUCH SALE PROCEEDS ARE DIRECTLY RELA TABLE TO THE EXPORTS MADE AND NO FURTHER INQUIRY IS NECESSARY. THEREFOR E THE ENTIRE CONTROVERSY AS TO WHETHER SUCH RECEIPT AMOUNTS TO ANY OTHER RECEIPT STIPULATED IN EXPLANATION (BAA)(1) NEED NOT BE TAK EN UP FOR CONSIDERATION. ONCE THE LEGISLATURE HAS PROVIDED FO R TREATING A RECEIPT WITHIN A PERIOD OF SIX MONTHS AFTER THE END OF THE PREVIOUS YEAR OR WITHIN FURTHER EXTENDED PERIOD AS SALE PROCEEDS RE LATABLE EXPORTS IT WOULD NOT BE OPEN TO THE REVENUE TO RAISE SUCH A CO NTROVERSY. THE LEGISLATURE IN ITS WISDOM HAS TAKEN INTO CONSIDERAT ION THE FACT THAT IN THE CASE OF EXPORTS MADE SALE PROCEEDS ARE NOT NEC ESSARILY REALIZABLE IMMEDIATELY WITHIN THE ACCOUNTING PERIOD IN WHICH E XPORTS HAVE BEEN MADE. AS A COROLLARY BY THE TIME SUCH SALE PROCEED S ARE RECEIVED WITHIN THE PRESCRIBED TIME BY VIRTUE OF EXCHANGE RATE DIF FERENCE THERE MIGHT BE A SITUATION WHERE A LARGER AMOUNT IS RECEIVED THAN THE AMOUNT AS REFLECTED IN THE SHIPPING BILL. HENCE MERELY BECA USE AN AMOUNT IS RECEIVED IN A YEAR SUBSEQUENT TO THE YEAR OF EXPORT BY WAY OF EXCHANGE ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -11- RATE DIFFERENCE IT DOES NOT NECESSARILY ALWAYS FOL LOW THAT THE SAME IS NOT RELATABLE TO THE EXPORTS MADE. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE UPHOL D THE ORDER OF THE CIT(A) ON THIS POINT. THUS THIS GROUND IS PARTLY ALLOWE D. ITA NO.1093/AHD/2007 : AY 2003-2004 (ASSESSEES APP EAL). 25. GROUND NO.1 OF THE ASSESSEES APPEAL IS WITH RE GARD TO CLAIM OF DEDUCTION UNDER SECTION 80IB ON SALE PROCEEDS OF TH E DEPB LICENSE. AT THE TIME OF HEARING BEFORE US THE LEARNED COUNSEL FAIR LY STATED THAT THIS GROUND IS SIMILAR TO GROUND NO.7 IN THE ASSESSEES OWN APPEAL FOR ASSTT.YEAR 2000-2001. FOR THE DETAILED DISCUSSION IN RESPECT OF DEDUCTION CLAIMED FOR AY 2000-2001 (SUPRA) WE REJECT THE GROUND NO.1 OF THE ASSESSEE. 26. GROUND NO3 OF THE ASSESSEES APPEAL IS WITH REG ARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80IB ON THE CURRENCY RATE D IFFERENCE. IT IS STATED THAT THE SAME SIMILAR TO GROUND NO.9 OF THE ASSESSEES A PPEAL FOR A.Y.2000-2001. FOR THE DETAILED DISCUSSION IN AY 2000-2001 (SUPRA) THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 27. GROUND NO.4 READS AS UNDER: THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING THE ACTION OF AO IN NOT GRANTING DEDUCTION U/S.80IB OF THE ACT ON PROFITS ON TRADING OF GOODS AMOUNTING TO RS.57 939/- 28. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIM E OF HEARING HAS NOT PRESSED THIS GROUND AND HENCE THE SAME IS DISMISSED . 29. GROUND NO.2 AND 5 TO 9 OF THE ASSESSEES APPEAL IS REGARDING COMPUTATION OF DEDUCTION UNDER SECTION 80HHC VIS-- VIS SALE PROCEEDS OF THE DEPB LICENSE. IT IS FAIRLY STATED THAT THE ABOVE G ROUNDS ARE SIMILAR TO GROUND NO.2 TO 6 OF THE ASSESSEES APPEAL FOR A.Y.2000-200 1. FOR THE DETAILED DISCUSSION THEREIN WE SET ASIDE THE ORDER OF THE C IT(A) ON THIS POINT AND ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -12- RESTORE THE MATTER TO THE FILE OF THE AO AND DIRECT TO RECOMPUTE THE COMPUTATION UNDER SECTION 80HHC IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF TOPMAN EXPORTS (SUPRA). 30. GROUND NO.10 OF THE ASSESSEES APPEAL REGARDING DISALLOWANCE OF DEPRECIATION ON MOTOR CAR. IT IS STATED BY THE BOT H THE PARTIES THAT THIS GROUND IS SIMILAR TO GROUND NO.10 IN ASSESSEES APPEAL FOR A. Y.2000-2001. FOR THE DETAILED DISCUSSION THEREIN DISALLOWANCE OUT OF DE PRECIATION IS CONFIRMED AND THIS GROUND OF THE ASSESSEE IS REJECTED. 31. GROUND NO.11 OF THE ASSESSEES IS AGAINST THE 1 /6TH DISALLOWANCE OUT OF TELEPHONE EXPENSES. AFTER HAVING HEARD BOTH THE SI DES WE FIND THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND THAT PERSONAL US ER OF THE TELEPHONE BY THE PARTNERS CANNOT BE RULED OUT. 1/6TH DISALLOWANCE O UT OF TELEPHONE EXPENSES BY THE LOWER AUTHORITIES CANNOT BE SAID TO BE EXCESSIV E OR UNREASONABLE. ACCORDINGLY GROUND NO.11 OF THE ASSESSEES APPEAL IS REJECTED. 32. GROUND NO.12 READS AS UNDER: THE LD.CIT(A) ERRED IN CONFIRMING THE ACTION OF A O IN DISALLOWING 1/10TH OUT OF STAFF WELFARE EXPENSES AMOUNTING TO R S.45 648/- 33. WE HAVE HEARD THE PARTIES AND PERUSED MATERIAL PLACE BEFORE US. THE AO HAS RECORDED THAT THE STAFF WELFARE EXPENSES INC LUDED THE PAYMENT FOR ENTERTAINMENT AND FOOD BILLS WHICH MAY INCLUDE SOM E ELEMENT OF PERSONAL EXPENSES. THE REASONING OF THE AO HAS NOT BEEN CON TROVERTED BEFORE US. WE THEREFORE DO NOT FIND ANY JUSTIFICATION TO INTERFER E WITH THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT. THE SAME IS UPHEL D AND GROUND NO.12 OF THE ASSESSEES APPEAL IS REJECTED. 34. GROUND NO.13 OF THE ASSESSEE IS APPEAL IS GENER AL IN NATURE NEEDS NO ADJUDICATION. ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -13- 35. GROUND NO.14 OF THE ASSESSEEES APPEAL IS AGAIN ST THE CHARGING OF INTEREST UNDER SECTION 234A/B/C. AT THE TIME OF HE ARING OF THE APPEAL BEFORE US THE LEARNED COUNSEL FAIRLY STATED THAT THIS GRO UND IS CONSEQUENTIAL. WE DIRECT THE AO TO RECOMPUTE THE INTEREST IN ACCORDAN CE WITH LAW AFTER DETERMINATION OF FINAL INCOME AS PER OUR ORDER. 36. GROUND NO.15 IS AGAINST INITIATION OF PENALTY P ROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE NE EDS NO ADJUDICATION AT THIS STAGE. ITA NO.817/AHD/2007 (REVENUES APPEAL) : AY 2003-20 04. 37. GROUND NO.1 OF THE REVENUES APPEAL IS SIMILAR TO GROUND NO.1 IN THE REVENUES APPEAL FOR A.Y.2000-2001. FOR THE DETAIL ED DISCUSSION THEREIN WE REVERSE THE ORDER OF THE CIT(A) ON THIS POINT AND R ESTORE THAT OF THE AO. 38. SO FAR AS GROUND NO.2 IS CONCERNED THE GROUND IS SIMILAR TO GROUND NO.2 RAISED IN THE REVENUES APPEAL FOR A.Y.2000-20 01. THEREFORE FOR THE DETAILED DISCUSSION THEREIN WE HOLD THAT (I) DEDUC TION U/S.80HHC SHOULD BE ALLOWED AFTER REDUCING DEDUCTION ALLOWED UNDER SECT ION 80IB AND (II) DEDUCTION U/S.80HHC IS ALLOWABLE ON CURRENCY RATE D IFFERENCE. 39. IN THE RESULT ALL THE APPEALS ARE PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 9 TH APRIL 2010. SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 09-04-2010 ITA.NO.816 817/AHD/2007 AND ITA.NO.1092 AND 1093/AHD/2007 -14- VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER AR ITAT AHMEDABAD